Thursday, May 13, 2010

Apropos my previous post on bundling and business models for content creation, James Fallows follows up with how to save the news.
Next in the Google assessment is the emphasis on “unbundling” as an insurmountable business problem for journalism. “Bundling” was the idea that all parts of the paper came literally in one wrapper—news, sports, comics, grocery-store coupons—and that people who bought the paper for one part implicitly subsidized all the rest. This was important not just because it boosted overall revenue but because it kept publishers from having to figure out whether enough people were reading stories from the statehouse or Mexico City to pay the costs of reporters there.

“Newspapers never made money on ‘news,’” Hal Varian said. “Serious reporting, say from Afghanistan, has simply never paid its way. What paid for newspapers were the automotive sections, real-estate, home-and-garden, travel, or technology, where advertisers could target their ads.” The Internet has been one giant system for stripping away such cross-subsidies.

So, unbundling is the future, right?
With this approach, Google has in a curious way re-created the “bundled” approach that it has helped destroy for newspapers. Virtually all of Google’s (enormous) revenue comes from a tiny handful of its activities: mainly the searches people conduct when they’re looking for something to buy. That money subsidizes all the other services the company offers—

I also found this fascinating:
The old-tech wastefulness of the process is obvious, but Varian added a less familiar point. Burdened as they are with these “legacy” print costs, newspapers typically spend about 15 percent of their revenue on what, to the Internet world, are their only valuable assets: the people who report, analyze, and edit the news. Varian cited a study by the industry analyst Harold Vogel showing that the figure might reach 35 percent if you included all administrative, promotional, and other “brand”-related expenses. But most of the money a typical newspaper spends is for the old-tech physical work of hauling paper around. Buying raw newsprint and using it costs more than the typical newspaper’s entire editorial staff.

“Nothing that I see suggests the ‘death of newspapers,’” Eric Schmidt told me. The problem was the high cost and plummeting popularity of their print versions... "Newspapers don’t have a demand problem; they have a business-model problem."

This is a very interesting point. The success of "new media" companies like Politico is that they aren't carrying these legacy costs, or the legacy mindset that it is a paper.
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